MetLife Upset With Federal Reserve Over Stress Test Results - Update

3/13/2012 7:41 PM ET

MetLife Inc. (MET) Tuesday played down the results from the latest round of stress tests by the Federal Reserve, stating that its financial position remained strong and is capable of meeting an adverse economic scenario.

The Federal Reserve earlier in the day revealed results from its stress tests, or Comprehensive Capital Analysis and Review, of 19 biggest U.S. banks, including MetLife, to assess their financial soundness to return more capital to shareholders.

Results from the tests showed that MetLife will not be able to maintain its core tier-one capital ratio at above 5 percent of risk-weighted assets, prompting the Federal Reserve to deny a request by the insurer for an increase in its capital distribution plan.

Expressing displeasure, MetLife CEO Steven Kandarian said that bank-centric methodologies used under the stress tests are unsuitable for insurance companies, which have a different business model.

Kandarian said that when gauged under methodologies apt for insurers, MetLife has an enviable financial position. He indicated that at the end of 2011, MetLife had a consolidated risk-based capital ratio of 450 percent.

In its capital plan submitted to the Federal Reserve, MetLife had requested for approval of $2 billion in stock repurchases and a raise in its annual common stock dividend to to $1.10 per share from $0.74 per share.

MetLife had excess capital of $3.5 billion at the end of 2011, and expects that to reach $6 billion to $7 billion by the end of 2012, before any capital distribution actions.

Apart from MetLife, the Federal Reserve said that Citigroup, SunTrust and Ally would all see their capital ratio fall below 5 percent if they went ahead with their capital plans. But most of the banks subject to the stress tests were allowed to raise dividends and buy back shares.

The Federal Reserve had asked these banks to evaluate their financial strength amid a global economy bogged down by recession and double-digit unemployment in the U.S. Only those banks that can prove their ability to maintain core capital levels above 5 per cent of risk-weighted assets are allowed to raise dividends and buy back shares.

J.P. Morgan Chase & Co. was the first institution to disclose its results. The bank said it would increase its quarterly dividend to 30 cents, and repurchase about $15 billion of stock over the next year.

MET closed Tuesday on the NYSE at $39.46, up $1.78 or 4.72%, on a volume of 12.2 million shares. In after hours, the stock dropped 3.7%.

British lender Lloyds Banking Group Plc. Friday reported higher profit in its first half, benefited by increased net interest income and margin as well as lower impairment. Looking ahead, the company lifted its net interest margin forecast.

Electronic Arts Inc. (EA) on Thursday reported an increase in profit for the first quarter, reflecting continued strong digital revenues, with both earnings and revenues topping Wall Street estimates. However, shares of the company fell over 4 percent, after having detailed a weak outlook.
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